this week was pretty much a “push” for both the bulls and the bears with the major indexes pretty much closing the week right about where they closed last week. however, we did get quite a few clear sell signals on the 60 min and daily charts since last week which, taken in aggregate with all of the recent warning signs building in the market should continue to warrant caution on the long-side. the million dollar question right now would be “was that sharp, but relatively shallow and quick correction earlier in the week enough to work-off the overbought conditions and provide the fuel for another significant advance higher?” nobody can answer that with certainty but based on my analysis, the answer is most likely “no”.
as stated today, i believe the EUR/USD will likely hold the key as to whether or not this market goes much higher before much lower. for now, i continue to favor considerable downside on the euro from at or near current levels, which should be one of the catalysts for a more lasting correction in stocks from around current levels and if the technical evidence starts to convince me otherwise, i will adjust accordingly. one thing to keep in mind when looking at how similar very extend runs in the market have lead to sharp sell-offs in the past is that those sell-offs often occurred after an initial “shot across the bow”, meaning a sudden and sharp sell-off that lasted on a few days, followed immediately by a nearly just a powerful move back up, often back to or even above the previous highs, before the powerful and lasting correction began. this chart posted today by kalinm at breakpointtrades.com highlights some of those pre-correction intermediate term tops.
